Aquaculture enters uncharted waters

There is an urgent need to safeguard the biodiversity of our oceans by switching to onshore fishing, but capital has not been deployed at scale.

The world’s oceans have a vital role to play in fighting climate change. According to the UN, they absorb 25 percent of all carbon dioxide emissions and capture 90 percent of the additional heat generated from those emissions.

But they also have economic significance. More than 3.5 billion people are dependent on the ocean for their food security, and approximately 120 million people work directly in fisheries and aquaculture-related activities, the majority of whom live in developing countries.

Multilateral organizations are seeking to raise awareness of the potential of the ‘Blue Economy.’ The UN initiated the ‘Ocean Conferences’ series in recent years, although there have only been two of them so far: one in 2017 and one in 2022, hosted by the governments of Kenya and Portugal. Kenyan president Uhuru Kenyatta spoke about the need for a “shift in gear from proposals to action” and of finding “a clear understanding of financing options and pathways.”

The EU also launched FANBEST to “foster the technology transfer to SMEs in blue biotechnology and exploitation of marine resources by creating a network of public and private entities focused on the fundraising that make possible the start and scale-up phase.”

Of most concern is the 122 percent rise in total global fish consumption from 1990 to 2018, according to the UN Food and Agriculture Organization. The growth of fishing practices at this scale is clearly unsustainable.

Gaining momentum

There has been a string of deals announced over the past year. SEAentia, a Portuguese sustainable aquaculture firm was one beneficiary of FANBEST, and there have been several impact initiatives. Ocean 14 Capital’s Blue Economy fund invested more than €10 million in Tilabras Aquaculture, a leading producer of tilapia fish, while Swiss-based responsAbility provided $40 million for Indonesia’s eFishery.

Nordic impact investor Katapult also recently announced 12 investments through its Ocean Deep Blue Fund. This raised €25 million at the end of last year, and has already allocated €11 million to, among others, a seaweed farming company in the Faroe Islands, and Matter, a UK-based microplastics capture company. Katapult says it chooses from a pipeline of some 1,800 investments.

In a report issued earlier this year on global food security, impact investment adviser Phenix Capital noted that the world’s oceans provide just 2 percent of the world’s food, despite seafood farming producing only one-tenth of the carbon emissions produced by beef farming. Only 5.6 percent of private debt on their database, equivalent to €1.1 billion, has been allocated to sustainable aquaculture. And only 1 percent of funds target small-scale fisheries, which together with aquaculture, provide the main source of animal protein for 17 percent of the world’s population.

“One major area of interest for investors is all about solving the requirement to have sustainable protein near centers of population,” says Hugo Llewelyn, CEO at Newcore Capital. “In this regard aquaculture is increasingly attractive. Fish farming on land can offer very important sources of protein in a good location (close to cities) and in a sustainable manner.”

Investor reluctance

So, what is holding investors back? The aquaculture industry is hardly alone in having to cope with higher interest rates and a paucity of capital from traditional providers. But there are specific challenges.

Mercedes Groba, innovation program manager at EIT Food, the EU-funded accelerator for investors and entrepreneurs, says several factors have contributed to the relatively sluggish capital influx into sustainable aquaculture. “Investors may have been deterred by perceived risks… and less aware of the potential for sustainable alternatives. The aquaculture sector, particularly sustainable practices, might be viewed as a new, complex and evolving industry, which can give rise to concerns about returns on investment and long-term viability.”

James Fox-Davies, director of land-based seafood specialist Aquacultured, certainly thinks high initial capital costs can deter investment. “We are talking about a ‘very’ large bespoke unit which needs to be built [plus] construction costs in the last few years have spiraled.”

He cites high-risk perception because of the relatively new nature of large-scale, land-based salmon farming which may cause some investors to perceive it as a risky endeavor, discouraging capital investment. “Farmers need to prove to investors that they have mitigated as much risk as possible,” he adds.

Effective operation of land-based farms requires specific technical expertise and knowledge, which can be challenging to acquire. “At scale, even a small problem can escalate quickly. Errors in production can be costly and retrofitting solutions is time consuming and expensive,” says Fox-Davies.

Aquaculture, like any controlled cultivation, is influenced by externalities such as weather events, water quality (algae blooms) or disease, which can dramatically impact production. “At the same time, some regulators are tightening rules around traditional aquaculture farming, levying taxes (such as the Resource Tax in Norway) or eliciting a straight out ban, which has hindered recent investment,” explains Rob Appleby, CEO at sustainable food and agriculture firm Cibus Capital.

He believes “the entire value chain needs to advance at a similar pace for investments to be effective.” For example, indoor shrimp farming in Europe has suffered from a lack of availability and improvements in genetics.

“The entire value chain needs to advance at a similar pace for investments to be effective”

Rob Appleby,
Cibus Capital

Starting to see the light?

Fortunately, as Fox-Davies observes, there is a growing recognition among investors about the potential of land-based aquaculture. “As consumer demand for sustainably produced food rises and the technology for land-based farming improves, investment is gradually increasing.” Additionally, the long-term economic benefits, such as reduced losses from disease and environmental events, and consistent year-round production, “are becoming more apparent, which is attracting more capital.”

Seafood continues to be the most efficient animal protein, from a feed conversion ratio and water use perspective, and more money needs to support sustainable technologies and services to improve aquaculture practices. “While there are more seafood/aquaculture specialist funds investing in Europe, both in start-ups and mature companies, generalist funds increasingly have aquaculture on their radar,” says Appleby. “As inflation ameliorates and interest rates follow, it is our belief that these projects will attract investors once more.”

The fact that other investors and organizations are starting to get involved indicates a growing interest and awareness from the investment community to the importance of sustainable aquaculture. “A collaborative effort is crucial not only for the financial success of these start-ups but also for the broader goal of transforming the aquaculture industry into a more sustainable and responsible sector,” adds Groba.

Looking to the future, she believes “as companies adopt cutting-edge technologies and practices, and consumers become more informed, the aquaculture industry can contribute to the nutritional needs of a growing population while safeguarding the health of our oceans and ecosystems.”

In Gobra’s view, this collaborative approach will ensure that “sustainable aquaculture becomes not just a niche segment but a mainstream, integral part of the global food supply chain. By 2030, two thirds of global seafood requirements could come from aquaculture – including fish, seaweed, shellfish and algae.”